EUR / USD
There were no major economic data releases on Monday and overall conditions were relatively subdued, especially with market holidays in Germany and France. The Euro held steady in early Europe, but was unable to make further headway and gradually lost ground as the dollar posted net gains.
There was selling interest in low-yield currencies with the yen and Swiss franc also under some pressure amid expectations of global monetary tightening. The Euro was unable to gain further support from expectations of a hawkish ECB policy stance at this week’s policy meeting with rate hikes priced in.
Overall, the Euro dipped to lows below 1.0700 after the New York open as yield spreads undermined the single currency.
There will be a further element of caution ahead of Thursday’s ECB policy meeting with forward guidance important for the medium-term trend. There are very strong expectations that the ECB will increase rates in July and evidence of a 50 basis-point increase would underpin the Euro.
As far as the Federal Reserve is concerned, there will be no public comments on monetary policy ahead of the June 15th policy meeting. The dollar maintained a strong tone on Tuesday as yield trends dominated global currency markets and the Euro traded below the 1.0700 level with losses to near 1.0665.
JPY
The dollar held a firm tone ahead of Monday’s New York open with sold risk appetite limiting potential demand for the Japanese currency.
The US may employment trends index edged lower to 119.77 for May from 120.18 the previous month with an increase in the number of respondents who stated that jobs are hard to get, although there was no significant impact following Friday’s employment report.
US Treasuries lost further ground after the New York open with the 10-year yield moving higher to test the 3.00% area. Higher yields were important in underpinning the US currency against the yen while Wall Street was able to hold gains. In this environment, the dollar was able to post net gains and surged to highs at 132.00 after the European close as higher yields continued to underpin the US currency. The 10-year yield increased to 3-week highs around 3.05%.
In comments on Tuesday, Bank of Japan Governor Kuroda stated that a weak yen is beneficial for the economy if the moves are not to sharp and that now is not the time for an exit strategy. Although a senior central bank official stated that a sharp yen weakening is undesirable, the currency remained under heavy selling pressure. The dollar posted fresh 20-year highs near 133.00 as yield trends dominated with the Euro at 7-year highs near 142.0.
GBP
Just after Monday’s European open it was announced that Prime Minister Johnson would face a confidence vote given that the required number of no-confidence letters had been reached. There was some surprise that the vote would be held with very short notice on Monday.
Sterling was able to post net gains on the news with some hopes that there would be an easing of political uncertainty which would allow a greater focus on the economy. There was also an element of speculation that the Bank of England would be more willing to raise interest rates.
Overall risk conditions were firm with solid gains in equities which attracted an element of Sterling support on short covering. Risk conditions were less confident later in the day which sapped potential support. The UK currency settled around 1.2530 against the dollar at the European close with the Euro dipping to near 0.8525.
Prime Minister Johnson won the Conservative Party confidence vote, but 148 MPs and over 40% of members voted against. In this context, the result will maintain a high degree of underlying uncertainty which will tend to undermine sentiment. BRC data recorded a 1.5% decline in annual like-for-like sales, maintaining concerns over the outlook. Sterling retreated sharply on Tuesday with a slide to below 1.2450 against the firm dollar with net Euro gains to 0.8580.
CHF
Swiss markets were closed on Monday and the data on sight deposits will, therefore, be released on Tuesday. The evidence on whether the National Bank had been intervening to weaken the franc will be significant for market sentiment towards the currency. Higher global bond yields were important in undermining franc support.
The Euro secured net gains to above 1.0350 against the franc while the dollar secured gains to highs around 0.9680. Global yield trends remained important on Tuesday, especially with the yen under heavy pressure. The franc lost ground, although not on the scale seen for the Japanese currency with the National Bank unlikely to tolerate rapid currency depreciation. The dollar posted gains to 0.9735 amid wider gains with the Euro around 1.0385.
Technical levels
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